Law

Small Biz Suffers From State Budget Cuts for Courts


In Alabama, state courts are closed on Fridays to save money

Photo illustration by 731; Photos: Getty Images(2)

In Alabama, state courts are closed on Fridays to save money

Real estate developer Darius Ross thought he had an open-and-shut case after he’d paid a plumber in Binghamton, N.Y., $25,000 for what he considered substandard work on an apartment complex. Instead, Ross says, it took 18 months and more than $10,000 in legal fees before a judge denied his request for a trial. “The court was very short-staffed,” says Ross, who believes an appeal would have consumed at least another year. With legal fees mounting and the renovated apartments sitting empty, “We just had to walk away from it.”

New York is one of 42 states that have reduced public funding for courts in the past three years, according to the National Center for State Courts (NCSC). State governments cut fiscal 2012 court budgets by a cumulative $600 million, or 5 percent, and 34 states left judicial vacancies unfilled and furloughed or laid off court workers.

California this year sliced $300 million from its $3.9 billion court budget. The state is planning a 15.2 percent cut for the coming year. South Carolina, which has the fewest judges per citizen of any state and nearly three times as many filings per judge, has slashed its state funding for courts by 40 percent over the past decade. In Alabama, state courts are closed on Fridays to save money, while New York canceled a program to use retired judges to hear cases and reduce a backlog.

The cutbacks are weighing disproportionately on businesses, as civil cases are forced to take a back seat to criminal cases, where the U.S. Constitution mandates a speedy trial. Small enterprises rely on the courts to adjudicate all manner of disputes, from broken contracts to broken marriages (both can have a paralyzing effect on business decisions and finances). “When the system is not adequately funded it slows down and people literally can’t get their day in court in a timely fashion,” says Bill Weisenberg, assistant executive director for public affairs of the Ohio State Bar Association. “We’re talking disputes that may involve $10,000 or less, and that’s a lot of money to a small businessman.”

Adding to the irritation, disputed funds in civil cases often end up in an escrow account, which neither side can touch until the case is settled. “I don’t have access to the money to expand my business, and you have to reserve against the possibility you might lose it,” says Roy Weinstein, managing director of the consulting firm Micronomics.

In Los Angeles, where courtrooms in 10 out of 46 courthouses are scheduled to close by June 30, a case that once took 15 months from filing to adjudication now can take five years, Weinstein says. A study conducted by his firm showed that from 2009 through 2013, delays in dispute resolution may cost the U.S. $52.2 billion in lost economic output.

There’s a vicious circle taking hold, Weinstein says. The reductions in court funding curb business productivity, which dampens tax revenue, leading state legislatures to make further cuts. “It becomes a death spiral, and that’s where we are now,” he says.

Dick Burdge, a Los Angeles attorney and president of the county bar association, says he’s been stuck for two years resolving a contract dispute between partners in a small clothing manufacturer. The courts are so backed up that the case is still stalled. It takes five months to get a court date for a discovery motion, something that used to take a few weeks. “It’s come to the point where you almost can’t come to the court if you have to have a motion decided before the trial takes place,” says Burdge.

It may take courts until 2020 before services return to their levels before the 2008 financial crisis, according to Dan Hall, vice president of court consulting services for the NCSC. Hall warns that the effects of the funding constraints may be felt long-term. Keep cutting and “you start hollowing out the judiciary,” he says. “We take it for granted that in this country we have the rule of law.”

The bottom line: A majority of U.S. states have reduced funding for courts, with cutbacks amounting to $600 million this year alone.

Green is a reporter for Bloomberg News.

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